Messy Brexit puts red meat at risk

Australian beef and sheepmeat businesses are at risk of becoming collateral damage as messy divorce proceedings play out between the United Kingdom and European Union.

Trade experts have urged Australian exporters and EU-certified producers to be aware of the risks and closely monitor events over the coming months when making business decisions.

UK Prime Minister Theresa May’s postponement of the scheduled vote on the Brexit withdrawal bill has thrown yet another spanner in a tenuous situation.

Meat and Livestock Australia’s international business manager for Europe Josh Anderson said the EU and the UK had both separately proposed splitting all country specific tariff rate quotas following the UK’s departure from the customs union.

Australia has two country-specific red meat export quotas at risk, the high quality beef Hilton quota of 7,150 tonnes with 20 per cent in-quota tariff and the sheepmeat quota of 19,186t with zero in-quota duty.

The proposal would see the Hilton beef quota split 65-35 between the UK and remaining EU respectively, and the sheepmeat quota split 80-20, Mr Anderson explained.

It’s bad news, equating to an erosion of Australia’s access and the Australian Government has formally objected through the World Trade Organisation.

Meat and Livestock Australia’s international business manager for Europe Josh Anderson.

While Australia has commenced free trade agreement negotiations with the EU, and the UK has also expressed a willingness to pursue an FTA post-Brexit, a disorderly exit posed a range of short-term risks to Australian red meat exports in the interim, Mr Anderson said.

“Despite, in theory, the combined tonnage to the UK and remaining EU-27 remaining unchanged, there is implicit risk in having a fixed split,” Mr Anderson said.

“Firstly, analysing trade volumes based on port of entry is not the same as identifying where the end-consumer is. Once product has entered the single EU market, whether via Felixstowe, Rotterdam or another port, it can move freely within the EU.

“Survey research of meat importers across the EU found that 10 to 40pc of non-EU imported beef in the UK was re-exported to other EU member states.

“While difficult to quantify, Australia risks losing flexibility of access to existing customers through the hard split of tariff-rate quotas.”

Secondly, under the existing regime, Australia has been able to move product across the single market based on economic conditions in various countries, Mr Anderson said.

For instance, over the last decade as the UK pound depreciated against the Euro, Australian beef exports have shifted towards continental Europe due to a relative increase in purchasing power.

“The splitting of tariff-rate quotas will mean Australian exporters cannot capitalise on opportunities or mitigate risk by shifting product between the two regions in future,” Mr Anderson said.

“Thirdly, basing future trading conditions on past relationships is error prone, as the fundamental trade dynamics will also shift concurrently with the separation of tariff-rate quotas.”

There is potential to displace roughly 200,000 tonnes of Irish beef currently exported to the UK or 40,000 tonnes of UK sheepmeat destined for France, for instance.

Mr Anderson said the lack of certainty was also having a direct impact on EU and UK importer’s businesses.

“The lead time that goes into producing an animal for the EU market is long, especially for beef,” he said.

“Notwithstanding the shipping times of 45-plus days, sourcing and preparing the cattle and sheep for this market can take over six months.

“With the deadline looming, UK and EU importers are having to make business decisions with their Australian exporting partners without any certainty as to what import regime will be in place and what level of quotas will exist.”

NOTE: The 481 zero-tariff grainfed beef quota which has been the subject of much angst as the EU and United States negotiate a deal which would cut Australia out to a large degree, is not involved in these discussions.

The 481 is not a World Trade Organisation-ratified quota and therefore is not in the UK or EU schedule of tariffs. The assumption is this quota will remain with the EU 27.